While outsourcing has been something of a boon for the channel, the more recent trend of wholesale business process outsourcing represents a more problematic conundrum for solution providers.
Once considered an exercise that large-scale enterprises could only afford to engage in, business process outsourcing (BPO) is now mainstream across the small- to midsize-business market. In fact, analyst firms expect the business process outsourcing market to be worth about $146 billion by 2008. Most often, the process that is outsourced usually has functions associated with human resources or payroll, so the impact that BPO has had on IT opportunities for solution providers has been relatively limited.
But Patrick Grady, CEO of a company called Rearden Commerce in San Francisco, is out to change that equation dramatically. Rearden is an ASP that, at least initially, has developed a set of applications that businesses will use to procure services for travel, the shipment of packages and even dinner reservations.
Called Rearden Employee Business Services, this Web-based platform is a series of software-as-a-service modules that Rearden has integrated using Web services. That integration then allows changes to a hotel booking to be automatically reflected in the associated rental car reservation.
Although that by itself may not substantially change the world as we know it, Grady's overall ambitions might. Rearden Commerce, named for the protagonist in Ayn Rand's novel "Atlas Shrugged", intends to recruit a number of software developers to build applications that will be integrated with the rest of its software-as-a-service platform. For example, you could easily see how any number of accounting applications could be delivered via the same service.
This idea harkens all the way back to some previous concepts floated by Microsoft. In a project once known as Hailstorm, Microsoft floated the idea of turning Windows and any number of applications into a series of on-demand modules that could be called over the Web. But that plan, originally put forth by Adam Bosworth, was scuttled when it was determined that it fundamentally threatened the core Microsoft business model for selling software.
Rearden Commerce--which now includes Bosworth and Jon Bosak, who co-created the XML specification, among the members of its technical advisory board--is setting out to create nothing less than a vendor-independent version of the Hailstorm software delivery model.
Moreover, Rearden today now has the backing of Hewlett-Packard, which is reselling its service, and in the near future should be announcing a number of similar reseller agreements with a large number of vendors.
For solution providers, this represents a problem because a lot of applications that are currently deployed on systems running at the customer's site are going to be increasingly accessed over the Web. That means that a lot of the technology integration and deployment revenue associated with those types of projects are going to disappear.
This issue has been building for some time. But with IBM now buying companies in specific vertical markets to add to its business process expertise and HP citing this area as the fastest-growing segment of its company, the time to consider the downstream repercussions of these events is now.
At the very least, IBM, HP and others should be actively developing channel programs under which they provide their loyal solution providers that ability to resell their business process outsourcing services. Alas, these and most other vendors engaged in this activity appear to be deliberately taking this business direct.
At the very most, solution providers should be considering what they may need to do to survive five years from now. Increasingly, that looks like it may mean developing their own business process expertise to develop their own services and compete against HP and IBM. In that instance, it may actually behoove them to partner with vendors that have committed to staying out of the business process outsourcing game, rather then continuing to cooperate with vendors that appear to be trying to disintermediate them via an end run called business process outsourcing.
None of this means that it's time create a general backlash against business process outsourcing, akin to what Lou Dobbs is trying to create against offshore outsourcing. But it is time for solution providers to take a good, long, strategic look at where some of the core fundamentals of the market are heading before they find their services offerings increasingly relegated to only unprofitable niches like support work doled out by the major vendors to subcontractors that are all too willing to take on work at any price. It's up to solution providers to make the necessary investments today to prevent that possibility from becoming a reality.